Domestic demand will continue to represent the engine of economic growth.
Joining the eurozone still uncertain.
The government’s prognoses and macroeconomic targets have significantly worsened in the Convergence Programme 2013-2016 compared to last year’s edition of the document. The government has dramatically lowered its economic growth forecast for 2013 from 3.1 per cent to 1.6, for 2014 from 3.6 per cent to 2.5 per cent and for 2015 from 3.9 per cent to 2.8 per cent, the programme posted on the Public Finance Ministry’s website and adopted by the government on Tuesday shows. The programme will be sent to the European Commission in this form.“Considering the international economic context and the economic and financial developments in the Euro Area, for 2013 the prognosis scenario entails a GDP growth of 1.6 per cent. Information on economic developments in many countries in the EU and other areas are still pessimistic and reveal the continuation of the economic crisis and the lowering of the economic growth level, which can indirectly affect Romania’s economic growth too,” the document shows.
Internal demand will continue to represent the engine of economic growth this year. Private consumption will grow by 2.4 per cent against the backdrop of a hike in the population’s available incomes. At the same time, the government will spend 1.6 per cent more in 2013, nevertheless maintaining the budgetary constraints and continuing the structural reforms in order to attain the budget deficit target. In what concerns exports, the government estimates a 3.7 per cent year-on-year growth in 2013, while imports will grow by 5.4 per cent.
Thus, the trade deficit’s GDP share will grow by 0.6 per cent year-on-year, reaching a level of 6.1 per cent. It is estimated that in 2014-2016 the Romanian economy will register a more sustained growth featuring an annual rate of 2.7 per cent, based on an improvement in all economic sectors, especially in industrial branches that have high export potential and in constructions.
Economic growth measures
Raising the population’s available incomes by hiking pensions by 4 per cent, public sector salaries by 7.4 per cent, the minimum salary to RON 750 on February 1 and to RON 800 on July 1, is one of the measures that the government plans to take this year in order to stimulate economic growth, according to the Convergence Programme. In what concerns hiking the efficiency of investments, the aim is to reorient their financing preponderantly toward funds received from the EU. When it comes to job creation, a net growth of 55,000 jobs is being considered through the draft budget for 2013.
The payment of arrears will free resources in the private sector and will restore confidence in market mechanisms. Likewise, the government will continue to offer state aid for investments in the economy.In order to bring more revenues to the state budget, namely an extra RON 2.9 bln, the government will apply the following measures: will not deduct the expenditures on the redemption of auto vehicles used for passenger transportation in what concerns the part of the value that surpasses RON 18,000 per year redemption for each auto vehicle; revising the book tax basis of incomes obtained from agricultural activities by establishing income norms; the special tax on the transportation of electricity and natural gas (RON 1/MW); contribution (fee) on extra incomes resulting from the deregulation of the price of natural gas.
Inflation’s downward trend to continue
In what concerns the inflation rate, the government estimates a slight drop compared to December last year, namely 5.25 per cent compared to 5.65 per cent. “For 2013 the inflation rate will remain at a low level, being set to reach 3.5 per cent, with an annual average of 4.3 per cent. A favourable impact on the inflation rate’s evolution in 2013 is expected from aggregate demand too, which is estimated to remain at a low level, but also from a better agricultural yield this year,” the document shows.
The government warns that maintaining the EUR/RON exchange rate above last year’s average level may put pressure by hiking the prices of imports but also of merchandises and services linked to the single European currency. The inflation’s downward trend will continue from 2014 to 2016. According to the estimates, considering normal annual agricultural yields and a low volatility of the international price of oil, the inflation rate would drop to 2.3 per cent in 2016, with an annual average of 2.5 per cent.
Recruitment of personnel remains frozen in public sector
The Convergence Programme also stipulates the freezing of recruitment of personnel in the public sector, a ratio of 1 new employment for every 7 layoffs being introduced. Last but not least, managers will have contracts based on performance. This year, against the backdrop of acceleration in economic growth, the working population is expected to grow by 0.5 per cent and the employees by 0.7 per cent. The unemployment rate stood at 7 per cent in 2012. The employment rate for the 20-64 age group stands at 63.8 per cent. The number of employees and their productivity will grow from 2014 to 2016. The unemployment rate will drop to 6.6 per cent, simultaneously with an employment rate hike to 65 per cent for the 20-64 age group.
Adopting the Euro, uncertain
In the 2013 Convergence Programme the government no longer stipulates a certain date for adopting the Euro as it used to do so far when it used to take the commitment to adopt the single currency in 2015. “The commitment to adopt the Euro is maintained for a date on which the nominal and real convergence criteria goal is reached,” the new Programme reads. “I talked with the Governor of the National Bank and with the Finance Minister too, we have to meet all criteria, both nominal and real, before joining the Euro Area.
Joining the Euro Area continues to be a fundamental goal for Romania, however we cannot join it unprepared because it would be a bad thing for us primarily and definitely for the other members of the Euro Area,” Victor Ponta stated recently. Asked whether the decision not to include a deadline has more to do with the situation in Romania than with what is going on in the Euro Area now, the Premier answered that both situations were taken into account. Early this year Premier Ponta announced that Romania joining the Euro Area in 2015 no longer represents a credible target but the goal should not be abandoned, the horizon for finalizing this process now being set around 2020.